No 'news' in steady growth of mortgage arrears; just rising cost in human misery countrywide

23 August 2012

The Central Bank today released figures showing that residential mortgage arrears are continuing to rise. The following is a statement by the Director General of legal rights group FLAC (Free Legal Advice Centres), Noeline Blackwell, in reaction to the new information:


The new Central Bank figures on residential mortgage arrears and restructurings will likely raise a mere ripple of interest in the news. Now in its fourth year, this set of quarterly figures has seen the figure rise from fewer than one in 20 mortgages being in trouble to now almost one in 9 mortgages in arrears.
Yet these figures represent 83,251 households in arrears of 3 months or more and another 45,165 households which are not that far gone yet but are behind on their payments. Add to this the 40,221 'restructured' loans not in arrears but which can only have been adjusted because the borrowers couldn't pay the full mortgage. That amounts to almost 170,000 households in Ireland, this day, this week.

From the information available to us through the people who contact us directly, our contact with MABS and with other NGOs who are working with overindebted people, it is clear that the reason people aren't paying the mortgage on their homes (because that's all these figures capture) is that they cannot. They do not have the money that they need to pay that one very basic debt.

We also know that not only can they not meet this key living cost, but that they are also unable to cover other basics of life such as electricity and food bills. You don't have to work at FLAC or one of the other groups supporting people in trouble to know that these households are under constant and enormous worry and stress. For many, many people, that worry is an ever-present ache, affecting them every hour of the waking day and into the night. Many people hide their concerns. Many hope they will go away by magic. Many people bring this tension and anxiety into their family lives, with resultant ill-health, relationship breakdown and downright misery.

This we in FLAC know anyway. However, today's data from the Central Bank is incontrovertible. The number of mortgages that are in the various types of trouble mentioned above add up to 22.1% of all residential mortgages. Let's slice it another way. There are 1,654,208 private households in Ireland. We now know that households with mortgage problems make up 10.2% of all households in Ireland, including the ones without mortgages. That is the scale of our mortgage arrears 'situation'. And yet, even now, the steps that our government is taking to deal with a problem that it acknowledges is massive and urgent are pitifully weak.

There is a 'code of conduct' which lenders are obliged to follow in dealing with borrowers who engage with them on their distressed mortgages. What happens to a lender caught in breach of this code? Well, the borrower (who is already in trouble with the lender) is free to lodge a complaint with the Financial Services Ombudsman. Where the lender complies with the code, the Central Bank explains that a solution will involve 'forbearance techniques' by the lender. So lenders might reduce the monthly amount payable, extend the term of a mortgage, or add arrears on to the capital.

The Central Bank also tells us today that 'all mortgage lenders are currently piloting new forbearance and loan modification techniques to provide longer term and more sustainable solutions'. So they are now at pilot stage. While it is better than nothing, it's not much better. It is what is becoming known as 'advanced forbearance'. Apart from what various lenders have chosen to tell us about these new solutions, we have heard nothing from government or the Central Bank about them. The banks have had plenty of time and space to explain their side of the story. We would now like to hear from government whether it thinks the banks' proposals for advanced forbearance will actually achieve fair, sustainable solutions for people.

While the code of conduct is not perfect, at least it forces lenders to engage with consumers on a residential mortgage debt. There is no such tool for other types of debt. Our experience in FLAC is that people have multiple debts and when they are pressed on one, it has knock-on consequences for other debts. Are we to believe that lenders seeking to minimise their losses on a mortgage will care about any other debt? In his speech on the Personal Insolvency Bill on 18 July 2012, The Minister for Justice and Equality, Alan Shatter TD, said "The reality remains that the banks, separately and internally, have no consistent policy for dealing with those who are totally weighed down by indebtedness and are facing circumstances in which it is appropriate to write down debt".

Though woefully overdue, the Personal Insolvency Bill that the Minister is now guiding through the Oireachtas will be one element of the solution. For those who can access its state-funded advice and advocacy services, the Money Advice and Budgeting Service (MABS) is also a key part of the solution. But today, in many of those almost 170,000 plus households, people will choose between paying debts and eating properly. They will fight among themselves, they will transmit their terrible tension, fear and worry to other family members, they will feel at their wits end.More, much more is needed. In the last day of the Dáil sitting before it rose for the summer, Minister Michael Noonan cited as 'significant milestones' the publication of the Personal Insolvency Bill, a mortgage-to-rent scheme and a website and telephone information line operated by the Citizens Information Board to provide information to mortgage holders.

Milestones these may be, but they're not going the distance needed. In FLAC we've said it before and no doubt we'll say it again. This is society's problem. It is not going to go away unless we act to clean it up. Our elected government, using the expertise available to it, must now finally come up with enforceable solutions that address this terrible, miserable, countrywide problem. So yes, bring in the personal insolvency legislation so that those who are hopelessly over-indebted can use it. It's a good start but we will not see it before the end of this year. Yes, bring in the advanced forbearance, but if all that means is a more sophisticated delaying mechanism which does not face reality, then much more is needed. Lenders need to be forced to confront the reality of mortgage arrears with a bottom-line requirement to meet consumers' interests.

Two serious gaps will remain even if this is done. One is the need to equip people to manage the millstone of their debt through expanded systems for legal and money advice and representation. The other is that structures must be put in place urgently to manage overall debt, not just residential mortgage arrears. Most people want to pay their debts. They would like to do this in a dignified way. But right now, the lack of government action is stripping dignity and decency away from the people behind today's figures.




Editors' notes:
1. FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal justice for all. FLAC is an NGO that relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work. FLAC offers basic legal information through its telephone information line and free legal advice through its network of 80 volunteer evening advice centres. It also campaigns on a range of issues including personal debt, fairness in social welfare law, public interest law and civil legal aid.

2. You can access the Central Bank data for Q2 2012 online

3. FLAC issued a comment on the recent report by Davy Research on mortgage arrears

4. FLAC has prepared a briefing note on the background to the reform of personal debt and insolvency laws

5. FLAC has resources on the issue of personal debt and a conference microsite on Legislating for personal insolvency in Ireland: International developments and domestic issues (April 2012).

6. Minister for Justice, Equality & Defence Alan Shatter TD launched FLAC's Annual Report for 2011 on 18 June.